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Ruling

Subject: food and drink provided at board meeting

Question 1

Is the morning tea provided at board meetings tax-exempt body entertainment as defined under section 38 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 2

If the answer to question 1 is no, does section 41 of the FBTAA apply to exempt the morning tea provided at board meetings?

Answer

No

Question 3

If the answer to question 2 is no, does section 58P of the FBTAA apply to exempt the morning tea provided at board meetings?

Answer

Yes

Question 4

If the answer to question 3 is no, does section 44 of the FBTAA apply to reduce the taxable value of the property benefit in respect of the provision of the morning teas at the board meeting where the employee is required to stay overnight in order to attend the board meeting?

Answer

Not answered

Question 5

Is the lunch provided at board meetings tax-exempt body entertainment as defined under section 38 of the FBTAA?

Answer

No

Question 6

If the answer to question 5 is no, does section 41 of the FBTAA apply to exempt the lunch provided at board meetings?

Answer

No

Question 7

If the answer to question 6 is no, does section 58P of the FBTAA apply to exempt the lunch provided at board meetings?

Answer

Yes

Question 8

If the answer to question 7 is no, does section 44 of the FBTAA apply to reduce the taxable value of the property benefit in respect of the provision of the lunch at the board meeting where the employee is required to stay overnight in order to attend the board meeting?

Answer

Nor Answered

This ruling applies for the following periods:

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

The scheme commences on:

1 April 2011.

Relevant facts and circumstances

The employer is a tax exempt body who has regular board meeting every six weeks. Other tasks are also arranged to on the day of the board meeting.

All but three of the board members travel from within an X km radius to attend meetings. The other three live further away and depending on their schedules may travel the day before or the day after the meeting.

Because of the number of people that attend the meeting it has to be held away from the employer's business premises and the same venue is used each time.

The meetings commence at 8:30am and continue until the agenda is completed. Morning tea and lunches are provided. No afternoon tea is provided.

Morning tea is provided at a cost of $X per person. The lunch is a self serve small buffet selection and is which costs $X per head and includes coffee, tea, orange juice and water. Lunch is a pre-set menu and is a selection of open sandwiches, wraps, salad and one hot dish served with rice. A limited fruit selection is available.

Lunch is for a period of 30-45 minutes

No alcohol is provided

Relevant legislative provisions

FBTAA section 38

FBTAA section 40

FBTAA section 41

FBTAA section 44

FBTAA section 58P

FBTAA subsection 136(1)

Reasons for decision

Summary

The morning teas and lunches provided at the board meeting are not fringe benefits as they are exempt under section 58P of the FBTAA.

Detailed reasoning

Background

The provision of food and drink is the provision of property. This is the case regardless of whether the provision of food and drink also constitutes the provision of entertainment.

However where the employer is an income-tax exempt entity the definition of property benefit in subsection 136(1) of the FBTAA requires us to examine whether the benefit is an income tax-exempt body entertainment benefits under section 38 of the FBTAA before we apply section 40 of the FBTAA.

If we eliminate section 38 of the FBTAA on the grounds that the provision of food and drink in this case is not the provision of entertainment, we then have to look at the application of section 40 of the FBTAA.

In looking at the application of section 40 of the FBTAA we need to examine section 41 of the FBTAA which exempts property that is provided and consumed on the business premises of an employer by a current employee on a working day.

For section 41 of the FBTAA to apply we need to determine if the external meeting room is considered to be business premises of the employer.

Taxation Ruling TR 2000/4 Fringe benefits tax: meaning of 'business premises' looks at where premises are business premises and paragraphs 48 and 49 state:

The employer must have a right of possession and control over the use of the premises during the course of its business operations. The absence of a right of possession and control may indicate the premises are not 'of the person', or the activities being carried out on the premises are not truly 'business operations' of the person.

In most situations where premises are owned or held under a normal commercial lease, both possession and control exist. Conversely, for example, the ad hoc hire of squash courts by an employer does not make the squash courts 'business premises' of the employer. This is because any rights the employer has are subject to the overriding control of the operator. In a practical sense, the premises are not those of the employer.

Although the example in paragraph 49 of TR 2000/4 refers to the ad hoc hire of a squash court the reason that the squash court is not business premises would equally apply in situations where an employee hires meeting rooms. Although hired regularly every six weeks the operators of the venue would still maintain overriding control of the meeting facilities.

Therefore if we eliminate section 38 of the FBTAA section 41 of the FBTAA will not exempt the provision of the food and drink as a property benefit.

The only 'blanket' exemption that could possibly apply to the property benefit is the minor exemption contained in section 58P of the FBTAA .

However as section 58P of the FBTAA requires an examination of associated benefits we will need to look at the morning teas and lunches that are provided throughout a fringe benefits tax (FBT) year as a group to determine if this exemption applies.

If it is concluded that section 58P of the FBTAA does not apply then it would be up to each employee to determine if the otherwise deducible rule would apply to their personal circumstances and make a declaration accordingly. Generally food and drink is a private expense to which the otherwise deductible rule would not apply. However a deduction is allowed where a person is required to travel in order to produce their assessable income and that travel involved an overnight stay away from home.

Is the morning tea entertainment

Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink looks at the concept of what is entertainment as it relates to the provision of food or drink for the purposes of applying the relevant provisions of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) and the Income Tax Assessment Act 1997 (ITAA 1997).

In respect of morning and afternoon teas paragraph 19 of TR 97/17 refers to Taxation Ruling IT 2675 Income tax and fringe benefits tax: entertainment - morning and afternoon teas; light meals; and in-house dining facilities. Paragraph 2 of IT 2675 states:

Providing morning or afternoon tea to employees (and associates of employees) on a working day either on the employer's premises or at a worksite of the employer is not the provision of entertainment. The cost of providing these refreshments is therefore not excluded as a deduction by subsection 51AE(4) of the ITAA. In most cases, an income tax deduction is allowable under subsection 51(1) of the ITAA.

In addition paragraph 10 of IT 2675 states:

If an employer is an income tax-exempt body, expenditure on morning and afternoon tea and light meals is not a fringe benefit under section 38 (income tax-exempt body entertainment benefits) of the FBTAA.

In looking at whether the provision of food and drink is entertainment TR 97/17 says we must look at four factors:

· why the food or drink is being provided;

· what type of food or drink is being provided;

· when that food or drink is being provided; and

· where the food or drink is being provided.

Paragraph 23 of TR 97/17 provides more detail on these tests and states:

It can be seen that the determination of whether or not the provision of food or drink constitutes entertainment requires an objective analysis of all the circumstances surrounding that provision. We are of the view that the following are relevant factors that should be considered in undertaking any objective analysis:

(a) Why is the food or drink being provided. This test is a 'purpose test'. For example, food or drink provided for the purposes of refreshment does not generally have the character of entertainment, whereas food or drink provided in a social situation where the purpose of the function is for employees to enjoy themselves has the character of entertainment.

(b) What food or drink is being provided. As noted above, morning and afternoon teas and light meals are generally not considered to constitute entertainment. However, as light meals become more elaborate, they take on more of the characteristics of entertainment. The reason for this is that the more elaborate a meal, the greater the likelihood that entertainment arises from the consumption of the meal.

For example, when an employer provides morning or afternoon teas or light meals, that food or drink does not usually confer entertainment on the employee. By contrast, a three course meal provided to an employee during a working lunch has the characteristics of entertainment. The nature of the food itself confers entertainment on the employee.

(c) When is the food or drink being provided. Food or drink provided during work time, during overtime or while an employee is travelling is less likely to have the character of entertainment. This is because in the majority of these cases food provided is for a work-related purpose rather than an entertainment purpose. This, however, depends upon whether the entertainment of the recipient is the expected outcome of the provision of the food or drink. For example, a staff social function held during work time still has the character of entertainment.

(d) Where is the food or drink being provided. Food or drink provided on the employer's business premises or at the usual place of work of the employee is less likely to have the character of entertainment; refer to the reasons in (b) and (c) above. However, food or drink provided in a function room, hotel, restaurant, cafe, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment. This is because the provision of the food or drink is less likely to have a work-related purpose.

In this case we have a morning tea which had it been provided on the employer's premises would not have been considered to be entertainment. However the employer has stated that their premises are not large enough to accommodate all the staff who attend the so an external venue is hired.

Therefore in line with the conclusion made in IT 2675 the morning tea provided at $X a head at the meetings is not entertainment.

Is the lunch entertainment

As with the morning teas in looking at whether the lunch provided is the provision of entertainment using the same four factors listed above.

In this case the food is being provided as 'lunch' during a break in the board meeting, consisting of a selection of open sandwiches, wraps, salad, one hot dish served with rice and a limited selection of fruit. The lunch is provided for a period of 30-45 minutes and no alcohol is provided.

Although there is a selection available this meal is probably more akin to a light meal than it is to a meal that would be provided if it was being provided as entertainment. Given the short length of time the employees have to consume the meal, the location and the fact no alcohol is being provided all point towards the meal being provided for sustenance rather than as entertainment.

Therefore it is accepted that the lunches are not entertainment.

Section 58P

Section 58P of the FBTAA provides an exemption for benefits that are minor.

In respect of the application of this section the Commissioner issued Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits. Paragraph 8 states:

A minor benefit is an exempt benefit under section 58P where:

· the notional taxable value of the minor benefit is less than $300; and

· it would be concluded that it would be unreasonable, having regard to the specified criteria in paragraph 58P(1)(f), to treat the minor benefit as a fringe benefit.

In this case both the morning teas and lunches are below $300 it is the second dot point that needs to be examined to determine if section 58P applies. In respect of this section dot point paragraphs 18 to 22 of TR 2007/12 state:

The criteria that need to be address to meet the second dot point are listed in the electronic version of our publication Fringe benefits tax - a guide for employers in chapter 20.8 and it states in part:

The following five criteria need to be considered when deciding if it would be unreasonable to treat the minor benefit as a fringe benefit.

1. The infrequency and irregularity with which associated benefits, being benefits that are identical or similar to the minor benefit and benefits given in connection with the minor benefit, are provided. The more frequently and regularly associated benefits are provided, the less likely that the minor benefit will qualify as an exempt benefit.

2. The total of the notional taxable values of the minor benefit and identical or similar benefits to the minor benefit. The greater the total value of the minor benefit and identical or similar benefits, the less likely it is the minor benefit will qualify as an exempt benefit.

3. The likely total of the notional taxable values of other associated benefits - that is, those provided in connection with the minor benefit. For example, where a meal, which is a minor benefit, is provided in connection with a night's accommodation and taxi travel, which themselves may or may not be a minor benefit, the total of their taxable values must be considered. The greater the total value of other associated benefits, in this case being the accommodation and the taxi travel, the less likely it is that the minor benefit will qualify as an exempt benefit.

4. The practical difficulty in determining what would be the notional taxable value of the minor benefit and any associated benefits. This would include consideration of the difficulty for you in keeping the necessary records in relation to the benefits.

5. The circumstances in which the minor benefit and any associated benefits were provided. This would include consideration as to whether the benefit was provided as a result of an unexpected event, and whether or not it could be considered principally as being in the nature of remuneration.

In looking at this case the board meetings are held every six weeks. This equates to approximately 8 meetings a year. This means that for a FBT year the morning teas total $X and the lunches $X.

However as they are both provide at the same event (being the board meeting) criterion 3 explains that they must be looked at as associated benefits therefore we need to add the values together. Therefore for a meeting the cost is $X and over the FBT year the cost is $X.

On looking at criterion 4 there would be no difficulty in determining the notional value and in looking at criterion 5 the provision of the benefit is not unexpected and it is not in the nature of remuneration.

Although not a listed factor it should also be noted that the meals are for sustenance and if the Board was able to use their business premises then the benefit would have been exempt under section 41 of the FBTAA.

However given the total notional value of all the associated benefits is below $300 (or slightly over if a 9^th meeting was held), that if they were able to be held on business premises would have been exempt, and the nature of the benefits themselves it is accepted would be unreasonable to treat the minor benefit as a fringe benefit.

Therefore both the morning teas and lunches provided at the board meetings are exempt benefits under section 58P of the FBTAA.